Virtual Currencies: EBA Publishes Opinion

July 7, 2014

On 4 July the EBA published its EBA Opinion on ‘virtual currencies’. The bottom line is that it thinks that virtual currencies are too risky for financial institutions to be involved. 

The EBA has previously issued a public warning, making consumers aware that VC are not regulated and that the risks are unmitigated as a result., but now addresses the question of whether virtual currencies are suitable for, or capable of being, regulated. The Opinion is said to be addressed to EU legislators and national supervisory authorities in Member States.  

The Opinion sees ‘some potential benefits’ of virtual currencies but thinks these ‘are less relevant in the European Union, due to the existing and pending EU regulations and directives that are explicitly aimed at faster transactions speeds and costs and at increasing financial inclusion’. In any case, the EBA identified more than 70 risks and only a complex regulatory approach, which would include the need to create scheme governing authorities that are accountable for the integrity of any virtual currency scheme, would counter these risks. Since no regime is in place, the EBA’s immediate response is to recommend that national supervisory authorities discourage credit institutions, payment institutions and e-money institutions from buying, holding or selling virtual currencies.

The EBA also recommends that EU legislators consider declaring that market participants at the direct interface between conventional and virtual currencies, such as virtual currency exchanges, become ‘obliged entities’ under the EU Anti Money Laundering Directive and thus subject to its anti-money laundering and counter terrorist financing requirements.

The EBA states:

‘This immediate response will ‘shield’ regulated financial services from VC schemes, and will mitigate those risks that arise from the interaction between VC schemes and regulated financial services. It would not mitigate those risks that arise within, or between, VC schemes themselves.

Other things being equal, this immediate response will allow VC schemes to innovate and develop outside of the financial services sector, including the development of solutions that would satisfy regulatory demands of the kind specified above. The immediate response would also still allow financial institutions to maintain, for example, a current account relationship with businesses active in the field of VCs.’